About

Revenue is the value of all sales of services recognised by a company in a period. Revenue (also referred to as Sales or Income) forms the beginning of a company’s income statement and it consists of a summary of gross sales made by that company.

Revenue recognition is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognised and determines how to account for it. Notice that this definition doesn’t include anything about payment for goods/services actually being received. Revenue can be recognised at a different time than when an invoice is sent to a customer or the payment is received. For example, companies often bill services as accrued fees, meaning that they won’t receive payment until a service has been delivered. However, they can start recognising the Revenue even if cash payment hasn't been received yet. Billing schedules and revenue recognition do not have to be linked. Sometimes they are but billing is simply based on an agreed schedule between the 2 parties involved whether RevRec is an accounting principle.

Precursive Revenue Management add-on helps you simplify Revenue Recognition for the 3 primary methods used in the industry.

Note - This is an add-on package. Please speak with you assigned CSM if you are interested in a Demo or to learn more or email customersuccess@precursive.co.uk 

Revenue Management Methods

You may manage Revenue differently depending on your local Accounting standards and your Revenue streams, whether that comes from Software Implementations or Professional Services and whether these are sold as Fixed Price or T&M. In the Software and IT Consulting world, we see that Revenue is usually managed in 3 primary ways:

1. BASED ON PERCENTAGE COMPLETE: Each month a percentage of the total fixed revenue is recognised depending on the percentage of completion of active projects. That is usually how revenue is managed and recognised for Fixed Price projects. That is often the case for example for Software Implementations. Example: If a software implementation was sold for $10.000 and in the first month 10% of the project was completed, that month you can recognise $1000. 
2. EQUAL PER PERIOD: The same Revenue Percentage is recognised each month. Monthly Recognised Revenue = Total Revenue / number of delivery months agreed. This is how Revenue associated to Managed Offerings and software licenses is usually recognised. For the latter, the formula would be: Monthly Recognised Revenue = Total Software Revenue / Months contracted. In fact, a customer could opt for a 6 month contract and you would recognise this over 6 not 12 months.
3. BY BILLABLE TIME SUBMITTED: Each month the actual time submitted by the consultants is recognised. This method may be more suitable for contracts where the total contract price is not fixed or cannot be reasonably estimated, and the progress of the work cannot be reliably measured.

No matter what is your method of choice, our Revenue Management Add-on Package allows you to forecast your Revenue to recognise on a monthly basis and compare it with your initial forecasts. By taking Phase Financials Snapshots (please see How to Take Snapshots of Revenue Forecast for more information), you are able to "save" your initial Baseline and then compare it with your updated Forecasts after you start delivering projects, recording actual progress and revising scheduled Bookings. At the end of each month, after all Timesheets have been submitted and approved, you are also able to compare your initial Baseline with your Actuals for that month.

On the Phase level, you are able to compare your initial baseline with your updated forecast and revised planned Revenue, as well as with your Actuals.

Revenue Management Process

Here is how you can easily manage your Revenue in Precursive:

1. At the beginning of any new Project Phase, after having finalised the effort estimate, PMs can take a ‘Baseline’ snapshot of the Phase financials. That can be taken manually by clicking on the button ‘Snapshot Revenue Forecast’ on Phase records, or this process can be automated. Please see How to Take Snapshots of Revenue Forecast for more information.
2. Revenue Forecast are recalculated every night (based on the changes made to Phase Bookings) or they can be recalculated manually from the ‘Reevaluate Revenue Forecast’ on the Phase record.
3. At the end of each month (or more precisely when a Reporting Period is closed - wait for it, more info below), ‘actual’ snapshots are taken automatically for each Phase.

That allows you to compare your Baseline with both actuals and updated forecast financials directly on the Phase record and via reports and dashboards.

Depending on the Revenue Management Method selected per each Phase, the Actual and Forecast Revenue varies:

• By Billable submitted time: depending on the amount of submitted billable hours per each month (planned for Forecast and actual hours for Actuals)
• By Percentage Complete: it compares the total Hours forecasted to complete the Project with the Actual Hours submitted to date
• Equal per Period: the forecast and actual revenue to recognise remains the same no matter to what changes are made to Bookings and what time has been submitted each month.

Periods Management

Timesheet Periods

Reporting Periods

End of Month (Period Close) Process

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